Wednesday, March 24
Outsourcing discussion... Insanity?
I grabbed this from Kuro5shin.org.
OK, first up we have Daniel Drezner talking about how good outsourcing is here from Foreign Affairs.org.
Summary: According to the election-year bluster of politicians and pundits, the outsourcing of American jobs to other countries has become a problem of epic proportion. Fortunately, this alarmism is misguided. Outsourcing actually brings far more benefits than costs, both now and in the long run. If its critics succeed in provoking a new wave of American protectionism, the consequences will be disastrous -- for the U.S. economy and for the American workers they claim to defend.That's a nice summary they give us of the article.
We are also set up with a critique of the above article here from The IT Professionals Association of America that throws some water on this.
The greatest mistake Drezner makes is the assumption that only low-value jobs will go abroad. "The parts of production that are more complex, interactive, or innovative -- including, but not limited to, marketing, research, and development -- are much more difficult to shift abroad." Difficult? If so, then the financial analyst positions that JP Morgan-Chase outsourced last September, and the design unit Intel is building in India prove that it is not as difficult as Drezner would have you believeThen, Mr. Drezner's blog has the reply to the critique here.
However, it's worth pointing out that the current direction of capital flows bears no resemblance to what either Roberts or Kirwin fear. The U.S. currently runs a massive capital account surplus, which finances both our budget and trade deficits. When restricted to foreign direct investment, the overwhelming majority of U.S. outrward FDI goes to other OECD countries. This objection is the reddest of red herrings.Captial account surplus? Let's see, we are having massive deficits, and most of the money that is floating this deficit is foreign investment (don't ask me for cites, I just remember reading this somewhere on a government site, and I've googled, and I haven't found anything worthwhile there either...) and we still have a capital account surplus? What about our trade deficits? This link is nice, as it has links to comments, and near the bottom somebody asks Mr. Drezner to explain if and how the trade deficit works to our advantage. :) I'm still trying to figure out how somebody gets "in the long wrong" out of "in the long run" unless it's just one of those typos.
I'm still of a mind that outsourcing is not a good policy for the US. I don't have a clue as to how to stop it, or even if we should try to stop it. I think education might be the better way to handle the issue, but with bunches of people spouting off that outsourcing is such a great idea, the point becomes education of what? Good sportsmanship? More thinking needs to be done here. I have a flood of ideas, all too quick for me to put done into this entry. Ideas that I have no idea if they even make sense. Intellectual property security, national economic issues, morality of cutting people's jobs so that the rich get richer by pocketing a percentage of the savings.
I just have to wonder what the pundits and economists and consultants that push for outsourcing would say if their job were suddenly outsourced. I truly believe that George Will would be a good first subject for this.
From this (the Indiatimes!) comes this article (4 pages down to one printable link, but they've got it bobby trapped, so I'm quoting the whole damn article!)
Printed from economictimes.indiatimes.com >News By Industry >Infotech >Software
Will US tech pay fall to Indian levels?
ECONOMICTIMES.COM[ WEDNESDAY, MARCH 24, 2004 12:04:43 AM ]
Ultimately, says economics, America could become India, thanks to offshoring.
Say what?
OK, so we're exaggerating, as all theory tends to do when considered in isolation from reality. But an increasingly louder voice of warning is being heard in the US, saying that the creation of a global pool of knowledge workers - where Seattle is no different from Bangalore - will equalise compensation level for such workers.
So long as they're equally productive - a big if there, of course, depending on who's measuring - there is no logic behind an Indian software programmer being paid a sixth of his American counterpart, says economics.
Today's famed "labour arbitrage" - a typically verbose American way of describing the simple business decision of giving a job to the guy who asks for less - would then force American salaries down to Indian levels.
Ah, but why not the other way round?
That's a simple function of demand and supply. As jobs flow from the US to India, there will be more out of work programmers in the US than there are jobs. Naturally, salaries will fall. Not so in India, where there are more jobs than programmers.
Once that happens, theoretically, of course, American companies will be perfectly happy to hire in the US rather than in India. The question, though, is that what American companies really want?
Meaning, do they really want American consumers to earn less? Don't forget, it's because Indian consumers earn less than Americans that multinational companies are forced to price their products according to Indian wallets. In sheer column terms, Indians may consume more of many products than Americans do, given that India's population is about four times that of the US's.
When it comes to dollar revenues from those sales, though, American consumers serve up much more to companies there than Indian consumers do in terms of rupee revenues here. So, a sharp drop in Americans' personal income - starting with tech jobs and then moving across industries - can only hurt the cause of corporate America, eventually.
Maybe that's the real factor which might stop offshoring!
Seriously, though, this is only what theory suggests. And theory would be proved right only if all jobs could be transported freely around the world to take advantage of a global work pool.
It's true, of course, that the knowledge worker essentially needs only a computer and an Internet connection, neither of which is moored in a particular part of the world. They no longer have to work in a specific location because that's where the factory is.
But the proportion of such jobs is not yet high, even in an economy as service-led as that of the US. The folks at Forrester, whose prediction of 3.3 million jobs - and $136 billion in wages - being shipped by US to countries like India in 10 years could actually help John Kerry become the next US President, say only 290,000 jobs have actually left US shores since 1999.
Given the 130 million jobs that the US economy comprises, that's a drop in the ocean, isn't it? Why, even the annual outflow of 220,000 jobs predicted by Forrester is roughly the number of jobs created - yeah, created, not held - in a month when the US economy is firing on all cylinders.
Sure, job creation numbers have been low this time around after the recovery kicked in, but a rebound is only a matter of time, say analysts. That public perception is way out of sync with the real numbers is evident from a Gallup poll of 1,005 adults in the US, in which 61 per cent were either very or somewhat concerned that they, or a friend or a relative, might lose their job because it's being moved to India or a similar country. And lest you don't believe it will matter in the November elections for the next US President, hear this: 75 per cent say jobs are very or fairly important as an election issue.
Perception aside, it's obvious that the overwhelming majority of US jobs aren't coming to India or any other country anytime in the foreseeable future. So, that business about American salaries falling to Indian standards isn't likely to materialise either - even if an out-of-work American programmer turns to pizza-tossing and makes about the same as the Indian he lost his job to.
That's probably good news for everyone concerned: the American consumer, the American corporation and, crucially, the Indian tech pro. For so long as there's no pressure of the kind economic theory describes, those jobs will keep flowing to Bangalore.
© Bennett, Coleman and Co., Ltd. All rights reserved.
Another set of interesting articles is here, along with another one here. Another take on outsourcing, because the laws in other nations aren't as employee protective as the US' from USA Today here. Here's a blog dedicated to globalization and labor (added to my blogroll).
This is an issue that could possibly affect the elections this fall. Possibly, but not very likely. Even so, I don't think anybody up for a vote has a cogent plan to deal with it any case, especially the incumbent. :/ Permanent link posted by bytehead @ 3/24/2004 01:39:00 AM
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